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macroeconomics principles

Questions and Answers of Macroeconomics Principles

3. Why do economists focus on consumer and producer surplus and not on the possibility of consumer and producer loss? Illustrate your answer on a supply and demand graph. L-P82
2. Explain how producer surplus is derived from the difference between the willingness to sell and the market equilibrium price. L-P82
1. Explain how consumer surplus is derived from the difference between the willingness to pay and the market equilibrium price. L-P82
Do you think the New York bagel tax is an effective tool to raise government revenue?Think about how the tax may or may not affect the purchasing behavior of New Yorkers. L-P82
Suppose that because of Alabama’s playing card tax, fewer consumers purchase cards and fewer store owners sell them. What is this loss of economic activity called? L-P82
✷ Why do taxes create deadweight loss in otherwise efficient markets? L-P82
✷ When is a market efficient? L-P82
2. Is there more than one potential equilibrium point when supply and demand change at the same time? Explain. L-P82
1. What happens to price and quantity when supply and demand change at the same time? L-P82
9. What roles do shortages and surpluses play in the market? L-P82
8. What happens in a competitive market when the price is above the equilibrium price? Below the equilibrium price?
7. Describe the process that leads a market toward equilibrium. L-P82
6. Does a price change cause a movement along a supply curve or a shift of the entire curve?What factors cause the entire supply curve to shift? L-P82
5. Why does the supply curve slope upward? L-P82
4. Describe the difference between inferior goods and normal goods. Give an example of each type of good. L-P82
3. Does a price change cause a movement along a demand curve or a shift of the entire curve?What factors cause the entire demand curve to shift? L-P82
2. Why does the demand curve slope downward? L-P82
1. What is a competitive market, and why does it depend on the existence of many buyers and sellers? L-P82
✷ How do supply and demand interact to create equilibrium? L-P82
✷ What determines supply? L-P82
✷ What determines demand? L-P82
✷ What are the fundamentals of markets? L-P82
11. Suppose that you must decide between attending a Taylor Swift concert or a Maroon 5 concert. The concerts are at the same time on the same evening, so you cannot see both. You love Taylor Swift
10. Read the poem “The Road Not Taken,” by Robert Frost. What line(s) in the poem capture the opportunity cost of decision-making? L-P82
9. Where would you plot unemployment on a production possibilities frontier? Where would you plot full employment on a production possibilities frontier? Now suppose that in a time of crisis everyone
8. Two friends, Rachel and Joey, enjoy baking bread and making apple pie. Rachel takes 2 hours to bake a loaf of bread and 1 hour to make a pie. Joey takes 4 hours to bake a loaf of bread and 4 hours
7. Suppose that a politician tells you about a plan to create two expensive but necessary programs to build more production facilities for solar power and wind power. At the same time, the politician
6. Suppose that an amazing new fertilizer doubles the production of potatoes. How would this invention affect the production possibilities frontier for an economy that produces only potatoes and
5. How does your decision to invest in a college degree add to your human capital? Use a projected production possibilities frontier for 10 years from now to compare your life with and without the
4. Are the following statements positive or normative?a. My dog weighs 75 pounds.b. Dogs are required by law to have rabies shots.c. You should take your dog to the veterinarian once a year for a
3. Think about comparative advantage when answering this question: Should your professor, who has highly specialized training in economics, take time out of his or her teaching schedule to mow the
2. The following table shows scores that a student can earn on two upcoming exams according to the amount of time devoted to study: L-P82
1. Michael and Angelo live in a small town in Italy. They work as artists. Michael is the more productive artist. He can produce 10 small sculptures each day but only 5 paintings.Angelo can produce 6
8. What factors are most important for economic growth? L-P82
7. Why does comparative advantage matter more than absolute advantage for trade? L-P82
6. What criteria would you use to determine which of two workers has a comparative advantage in performing a task? L-P82
5. Does having an absolute advantage mean that you should undertake to produce everything on your own? Why or why not? L-P82
4. Why does the production possibilities frontier bow out? Give an example of two goods for which this would be the case. L-P82
3. Draw a production possibilities frontier curve.Illustrate the set of points that is feasible, the set of points that is efficient, the set of points that is inefficient, and the set of points that
2. Is it important to build completely realistic economic models? Explain your response. L-P82
1. What is a positive economic statement? What is a normative economic statement? Provide an example of each (other than those given in the chapter). L-P82
✷ What is the trade-off between having more now and having more later? L-P82
✷ What are the benefits of specialization and trade? L-P82
✷ What is a production possibilities frontier? L-P82
✷ How do economists study the economy? L-P82
8.a. In this example, Patrick is better off by $0.50 because he was willing to pay $2.50 but paid just $2.00. Jill is better off by $0.75 because she would have accepted $1.25 but Patrick paid her
6. The women have a direct positive incentive to wait in line. They will save $200 when they buy the TV. There are many trade-offs that they face: missed sleep, time they could have spent with family
4. If Colombia decided to specialize in the production of coffee, it could trade coffee to Canada in exchange for computer software.This process illustrates gains from specialization and trade. Both
1.a. Because your tickets are worth more than you paid for them, you have a direct positive incentive to resell them.b. The “sales tax holiday” is a direct positive incentive to buy more clothes
8. We have talked about how trade creates value.Use the information in each example below to compute the total value created in each exchange:a. Patrick bought an orange pen from Jill for$2.00.
7. Whiplash (2014) is about an aspiring collegeage drummer who wants to become the best drummer in the world. He is willing to sacrifice personal relationships, practices tens of thousands of hours,
6. Would you wait in line three weeks to be the first customer at Best Buy on Black Friday (the day after Thanksgiving, the “official start” of the holiday shopping season)? Two women from
5. After some consideration, you decide to hire someone to help you move from one apartment to another. Wouldn’t it be cheaper to move yourself? Do you think the choice to hire someone is a
4. Suppose that Colombia is good at growing coffee but not very good at making computer software and that Canada is good at making computer software but not very good at growing coffee. If Colombia
3. By referencing events in the news or something from your personal experiences, describe one example of each of the five foundations of economics discussed in this chapter.
2. Compare your standard of living with that of your parents when they were the age you are now. Ask them or somebody you know around their age to recall where they were living and what they owned.
1. What role do incentives play in each of the following situations? Are there any unintended consequences?a. You learn that you can resell a ticket to next week’s homecoming game for twice what
1. How would you respond if your instructor gave daily quizzes on the course readings? Are these quizzes a positive incentive or a negative incentive?
✷ What are five foundations of economics?
✷ What is economics?
11. (LO 5) What three arguments were brought forward to support the idea that the stimulus packages of 2009–2010 should be abandoned in favour of policy aimed at reducing deficits?
10. (LO 5) Why was Canada the first of the G20 nations to recover from the recession of 2008–2010?
9. (LO 2) How do Keynesians see the economy adjusting to a reduction in aggregate demand?
8. (LO 2) Explain the circumstances in which economic policy might increase real GDP without affecting the price level.
7. (LO 2) If you were a Keynesian, how would you explain the effect of an increase in savings on the economy?What if you were a neoclassicist?
6. (LO 1) Why is unemployment voluntary, according to neoclassical theory?
5. (LO 5) Why have many argued that Canada’s Action Plan of fiscal stimulus in 2009–2010 was a success?
4. (LO 2) Assume that Figure 13.12 refers to the 1930s.Describe in words what actually occurred that enabled the economy to return to full-employment equilibrium.
3. (LO 1, 4) In what way were economic conditions in the first decade of the twenty-first century similar to those in the 1920s?
2. (LO 1) What is Say’s Law?
1. (LO 1, 2, 3) Match each item in the left-hand column with a related idea or event in the right-hand column by writing the appropriate letter in each blank.A. laissez-faire 1. Keynesians B. demand
Independent economic research has also determined that every 1 percent cut in tax rates in Copland will increase aggregate supply by $5 billion because it stimulates productivity.d) For the same 6
(LO 1, 2, 3) The economy of Copland is in equilibrium but is suffering from a recessionary gap of $10 billion.Its aggregate demand and supply curves are shown in Figure 13.11.a) Draw the potential
6. (LO 1, 2) Figure 13.10 shows the aggregate demand for the economy of Bachland. Its potential GDP (LAS) is $350.According to neoclassical theory:a) If the price level is 110, is the economy of
5. (LO 1) Table 13.2 shows the savings and investment functions for the economy of Brittenia.a) What is the equilibrium rate of interest and the amount of loanable funds?Rate of interest:Loanable
4. (LO 3) Figure 13.9 shows the economy of Straussland is in equilibrium and suffering from stagflation.a) What are the present values of GDP and the price index?GDP: $ (billions) Price index:b) By
Suppose that, because of uncertainty in the economy, employers cut back on hirings with the result that the demand for labour falls by 0.75 (million) workers.a) Draw the new labour demand curve on
3. (LO 1) Figure 13.8 shows the labour market for Lumberland.
2. (LO 3) Figure 13.7 illustrates the economy of Ukatria, which is in equilibrium.a) What are the present levels of real GDP and price?GDP: Price level:b) By how much must aggregate demand increase
1. (LO 1) Figure 13.6 shows the savings and investment of loanable funds for the highly classical economy of Glucklanda) What is the equilibrium rate of interest in Gluckland?b) According to the
10. What three arguments did neoclassicists present as to why austerity programs are better than stimulative programs?
9. Why were most of the stimulus efforts by governments in the 2008–2010 recession focused on fiscal policy rather than on monetary policy?
8. What were the major causes of the 2008–2010 financial crisis?
7. If fiscal and monetary policy are used in tandem to address a recessionary gap, which of the two is made more effective? Why is this?
6. Describe what will happen to real GDP, the unemployment rate and the price level as a result of a massive increase in military spending.
5. According to Keynesian theory, will an increase in aggregate demand cause an increase in real GDP, nominal GDP, or both?
4. Explain why Keynes felt that the level of savings is not affected greatly by changes in interest rates.
3. The accompanying table shows the labour demand and supply in a hypothetical economy.a) What is the equilibrium wage rate, and how many workers would be employed?b) Suppose that the wage rate
2. According to neoclassical economists, what two things could cause a decrease in interest rates?
1. Why did neoclassical economists feel that the aggregate supply curve is vertical at the full-employment level of GDP?
LO5 Explain the cause of the 2008–2010 financial crisis, its economic consequences, and suggested remedies.
LO4 Recount the significant economic changes that occurred in Canada and around the world at the end of the twentieth century.
LO3 Describe the evolution of the welfare state and the rise of supply-side economics.
LO2 Describe how Keynesian economics challenged accepted beliefs about curing economic depression and maintaining prosperity.
LO1 Explain why neoclassicists believe the economy will automatically achieve full-employment equilibrium.
10. (LO 5) Are the prices of products in different countries that use a common currency (like Europe) the same or different? Explain your answer.
9. (LO 4) According to supply-siders, a reduction in tax rates will increase work, saving, and investment. Explain why.
8. (LO 4) What are the causes of stagflation? How can stagflation be cured?
7. (LO 6) Why will deflation lead to a drop in consumer spending and investment?
6. (LO 3) What is the Phillips curve?

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